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There’s a scandal that’s been brewing at the IRS for years — but not the one you’re thinking of. This one has nothing to do with conservative groups.
In fact, while the IRS exercised increased regulatory zeal for conservative nonprofits, it has abdicated its oversight duties with those nonprofits that use “fiscal sponsorship.”
Fiscal sponsorship is a fundraising practice intended to allow small, resource-constrained projects to receive sponsorship from a more permanent charity, utilizing the sponsor’s staff, offices, and services, the most important of which is fundraising ability. However, some tax-exempt non-profits are laundering money, circumventing disclosure laws, and even funneling taxpayer dollars into politically-motivated causes.
The IRS’ Tax Exempt and Government Entities Division-the same department embroiled in the agency’s targeting of conservative non-profits-has provided little to no oversight regarding this practice. As a result, some left-leaning non-profits have pushed the program into highly questionable territory, using fiscal sponsorship to abuse the law, while acting as if they are above it.
My organization, Cause of Action, discovered in our own fifteen-month investigation that some fiscal sponsors act as money launderers, while others appear to be acting as financial conduits. One example is the International Humanities Center that sponsored over 300 other charitable projects then disappeared with more than $1 million in pending charitable donations intended for those projects.
While conservative organizations are attacked as funded by “dark money,” a new report released by the minority staff of the Senate Committee on Environment and Public Works (EPW) shows how several liberal donors are using foundations to hide their contributions to grassroots and political causes through fiscal sponsorship. Fiscal sponsorship not only allows donors to hide from the public, but to hide from the IRS as well, as fiscally sponsored projects are not required to report their activities to the government.
According to OpenSecrets, in the current election cycle, the most money being spent by Super PACs is $44 million by groups against Republicans.
Numerous groups ranging from Sierra Club to the League of Conservation Voters do not disclose their donors. The so-called “dark money” problem manufactured by the left is one they can blame on themselves. But the expenditures by these organizations present a further problem: the risk that charitable money is being funneled for political purposes without any oversight. Worse than “dark money” or “shadow lobbying” this problem is one of invisibility, where not even federal auditors have the ability to ensure accountability and compliance.
These problems prompted Cause of Action to petition the IRS to change the rules concerning fiscal sponsorship and to ask TIGTA to investigate specific organizations that could be violating their tax-exempt status through fiscal sponsorship activities. Neither the IRS nor TIGTA have taken action, which is why Congress should immediately investigate the extent of these abuses and hold the IRS accountable to fix these issues.
Effective congressional oversight and legislative change will prevent the IRS from providing too little oversight for those political non-profits that abuse the laws the rest of us have to follow.
Dan Epstein is executive director of Cause of Action, a non-profit, nonpartisan group that promotes government accountability and transparency.